Integrating Risk into Cost-based Sourcing Decisions A Case Study at Volvo Buses

Abstract

As competition intensifies in the automotive industry and uncertainties continue to grow, purchasing organizations face increasing pressure to balance cost efficiency with supply chain resilience. At Global Buses Purchasing (GBP) within Volvo buses, these two priorities have been identified as central strategic objectives. However, no practical tool currently exists that integrates supplier-related risks into cost-based sourcing decisions. Cost and risk are treated as parallel but separate dimensions where risk is discussed in governance forums without directly influencing the cost figures used to compare supplier quotations. This thesis investigates how supplier-related risks can be more systematically incorporated into the sourcing process at GBP. The study was conducted as a qualitative case study, drawing primarily on semi-structured interviews with 34 respondents across GBP and Prevost, supported by analysis of internal assessment resources and documentation, and an Analytical Hierarchy Process-based (AHP) online survey distributed to internal stakeholders within GBP. The empirical findings reveal a consistent pattern in which risk assessments serve primarily as screening mechanisms rather than integrated inputs to cost-based supplier comparisons. Building on these findings, the thesis develops a risk-adjusted Total Landed Cost (TLC) model that translates a pre-existing risk assessment tool into a risk index which is applied as a multiplier to the baseline TLC. This will allow sourcing alternatives to be compared on a consolidated economic basis within GBP’s existing governance structure. The thesis thereby contributes a structured empirical account of how risk is currently managed within GBP’s sourcing process and proposes a pragmatic model for integrating risk directly into cost-based supplier comparisons in a way that is transparent, usable and compatible with GBP’s existing resources and governance structures.